Common Credit Myths Explained

There's a lot of bad advice floating around about credit. Some of it sounds logical. Some of it comes from well-meaning friends and family. But following myths instead of facts can actually hurt your credit score and cost you money. Let me set the record straight on the most common credit myths.

Myth 1: Checking Your Credit Score Hurts It

This is probably the most widespread credit myth, and it's completely false. When you check your own credit score, it's called a soft inquiry. Soft inquiries have absolutely no effect on your credit score. Hard inquiries — the kind that happen when a lender checks your credit because you applied for a loan or credit card — can lower your score slightly. But checking your own score? Completely harmless. You should check your credit score regularly. It's the only way to know where you stand and catch any problems early. Many banks and credit card companies offer free score access.

Myth 2: You Need to Carry a Balance to Build Credit

This myth has cost people a lot of money in unnecessary interest payments. You do NOT need to carry a balance on your credit card to build credit. What builds credit is using your card and making payments. You can charge something small each month, pay the full balance by the due date, and pay zero interest — and your credit will build just fine. The credit bureaus see that you're using credit responsibly and making on-time payments. They don't care whether you paid interest or not. In fact, carrying a balance hurts your credit utilization ratio, which can actually lower your score.

Myth 3: Closing Old Credit Cards Helps Your Score

The opposite is true. Closing old credit cards can hurt your score in two ways. First, it reduces your total available credit, which increases your credit utilization ratio. If you have $10,000 in available credit and close a card with a $3,000 limit, your available credit drops to $7,000. If your balance stays the same, your utilization goes up. Second, closing an old card can reduce the average age of your credit accounts. Length of credit history is 15% of your score, so shorter is worse. If an old card has no annual fee, keep it open. Put a small recurring charge on it to keep it active, and pay it off each month. This maintains your credit history and available credit.

Myth 4: All Debt Is Bad

People often hear "get out of debt" and assume that all borrowing is harmful. But that's not true. There's a meaningful difference between good debt and bad debt. Good debt — like a reasonable mortgage or student loans for an in-demand degree — can help you build wealth over time. Bad debt — like high-interest credit card debt on depreciating purchases — drains your wealth. The key isn't to avoid all debt. It's to borrow strategically and only for things that provide a return greater than the cost of borrowing.

Myth 5: Your Income Affects Your Credit Score

Your income is not a factor in your credit score. Someone earning $30,000 per year can have a higher credit score than someone earning $300,000. Credit scores are based on how you manage the credit you have, not how much money you earn. Payment history, credit utilization, length of credit history, credit mix, and new inquiries — that's what matters. Of course, income affects your ability to pay bills and manage debt, which indirectly affects your credit behavior. But the score itself doesn't factor in how much you make.

Myth 6: Paying Off a Collection Removes It From Your Report

Paying off a collection account is the right thing to do, but it doesn't automatically remove the item from your credit report. The status changes to "paid collection," which looks slightly better than "unpaid collection" — but it still shows up. The collection account stays on your report for seven years from the date of the original delinquency, regardless of whether you pay it. However, newer scoring models like FICO 9 and VantageScore 3.0 ignore paid collections when calculating your score. So while the item remains on your report, its impact on your score may be reduced if the lender uses a newer model.

Myth 7: You Only Have One Credit Score

You actually have dozens of credit scores. FICO alone has multiple versions, and each credit bureau may calculate a different score based on slightly different information. Your FICO 8 score might be different from your FICO 9 score. Your Experian score might differ from your Equifax score. This is why the number you see through your bank might not match the number a lender pulls. Don't stress about the exact number. Focus on the range you're in and the overall trend.

Myth 8: Co-signing a Loan Won't Affect You

When you co-sign a loan, you're fully responsible for that debt if the primary borrower doesn't pay. The account appears on your credit report. Late payments will hurt your score. If the borrower defaults, it goes on your record. Co-signing is essentially telling the lender, "If they don't pay, I will." It's a serious commitment that should not be taken lightly.

Myth 9: Credit Repair Companies Can Fix Everything

Some credit repair companies promise to remove all negative items from your report. Be skeptical. Legitimate negative information cannot be legally removed from your credit report before its reporting period expires. What you can do — and what legitimate credit repair involves — is dispute inaccurate information. If something on your report is wrong, you have the right to have it corrected or removed. Anything a credit repair company does, you can do yourself for free by filing disputes directly with the credit bureaus.

Myth 10: Getting Married Merges Your Credit

When you get married, your credit reports and scores remain separate. There is no combined credit report for married couples. However, any joint accounts you open together will appear on both reports. And if your spouse has poor credit, it might make it harder to qualify for joint loans with good terms. Your individual credit history remains yours, even after marriage.

Common Questions

Does renting a car check your credit?

Some rental car companies do a soft check when you rent with a debit card. This doesn't affect your score. If you use a credit card, they typically don't check at all.

Does canceling a credit card hurt my credit if I never used it?

Yes, it can. Even a card you never used contributes to your total available credit and your average account age. Closing it removes both benefits.

Is it true that you need credit to get credit?

To some extent, yes. Without any credit history, lenders have no data to evaluate you. Secured credit cards and credit-builder loans are designed specifically for people starting from zero.

The Bottom Line

Credit myths can lead to costly mistakes. The facts are straightforward: pay on time, keep balances low, keep old accounts open, and check your credit regularly. Don't take credit advice from random sources without verifying it. When in doubt, rely on information from established financial institutions and the credit bureaus themselves. Your credit is too important to manage based on myths.